Not A Market For The Dogs Of The Dow

With the first half of 2023 coming to a close this past Friday, the equity markets rewarded investors with strong performance. Much of the market’s return to date has been driven by the so-called ‘Big Seven” stocks, Meta Platforms (META), Amazon (AMZN), Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), Tesla (TSLA) and Alphabet (GOOGL). The combined average return of these seven stocks in the first six months of the year is 89.1%, far outpacing the S&P 500 Index return of 16.9%. The Dividend Aristocrats as represented by the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) returned just 5.7% in the first six months. Not a terrible return for half of a year, but far behind the S&P 500 Index return and the Big Seven stocks’ return.

Periodically during the year I post blog content covering the performance of the Dogs of the Dow. The Dogs of the Dow strategy has the sole focus of investing in the highest dividend-yielding stocks in the Dow Jones Industrial Average Index. The Dogs of the Dow strategy is one where investors select the ten stocks that have the highest dividend yield from the stocks in the Dow Jones Industrial Index after the close of business on the last trading day of the year. Once the ten stocks are determined, an investor invests an equal dollar amount in each of the ten stocks and holds them for the entire next year. In my post covering the first-quarter performance of the Dogs of the Dow, collectively, the ten stocks had squeezed out a small positive ‘total return’ of .5%. In the second quarter, the Dow Dogs generated a negative return resulting in the return for the first six months equaling -.8% versus the S&P 500 Index return of 16.9%.

Clearly, the market’s focus on A.I., i.e., artificial intelligence, related stocks has been a headwind for the dividend-focused strategies as well as many other investment approaches. From a positive perspective, Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, noted market breadth & contribution improved from May to June, but returns were still concentrated in the top issues in the Index. Through June, forty-four stocks accounted for the June 2023 year-to-date gain, compared to just eight stocks for the year-to-date gain through May 2023. This broadening of performance contribution would be healthy for continuing the market advance through the second half of the year.

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.